ECONOMIC SURVEY - 28-Jan-98

28 January 1998

(COMMUNICATED BY GPO ECONOMICS DESK)

GOVERNMENT SECTOR:

* BANK OF ISRAEL LOWERS INTEREST RATES BY 0.5%.
On 26.1.98, the Bank of Israel announced it was lowering its interest rate for resources it loans to commercial banks by 0.5%, thus bringing down the interest rate to 12.9%. The bank reported it was taking this move because the rate of inflation is running close to the lower end of the government's inflation target. The bank reported that this move does not mean that a deeper cut will necessarily be made in the interest rates which were last decreased in September 1997. Central bank governor Frenkel also reported that fiscal restraint and monetary policies need to continue in 1998, especially considering the current currency crises in Asia.
Bank of Israel - Gabi Fishman, 972-2-6552712

MACRO-ECONOMIC SECTOR:

*FOREIGN INVESTORS' SECURITIES HOLDINGS IN ISRAEL REMAIN STEADY
Foreign investors' holdings of Israeli securities remained at 12.7% at the end of November 1997, the same as in October, the Bank of Israel reported. The central bank reported that foreign investors' with investments of over 5% in a publicly traded company, thus making them substantial owners, fell to 7.2% in November, compared to 7.3% in October and September. Israelis' investments in overseas assets were NIS 13.63 billion at the end of November, as compared to NIS 13.64 billion in October, though were up by almost 100% from the NIS 6.37 billion which were recorded at the end of 1996.
Bank of Israel - Gabi Fishman, 972-2-6552712

*NON-FINANCIAL SECTOR REAL INVESTMENTS BY ISRAELI FIRMS ABROAD WERE $900 MILLION IN 1997
Real investments by non-financial sector Israel firms abroad were $900 million in 1997, compared to $1 billion in 1996 and $600 million in both 1995 and 1994, the Bank of Israel reported. The investments included investments or mergers of subsidiaries abroad, loans made by the business sector to subsidiaries, and the purchase of real estate. According to the central bank, approximately 70% of the investments in 1997 were continuing investments in subsidiaries established abroad earlier. The electronics and communications sector was the leading industrial sector with investments abroad amounting to approximately $240 million.
Bank of Israel - Gabi Fishman, 972-2-6552712

*ISRAELI FIRMS RAISED NIS 10.9 BILLION IN 1997
Israeli firms raised NIS 10.9 billion in offerings both in Israel and abroad in 1997, as compared to NIS 5.2 billion in 1996, the Bank of Israel reported. The majority of the increase occurred on the local capital markets on which Israeli firms increased their offerings to NIS 6.4 billion, or 59%, as compared to NIS 1.3 billion, or 25%, in 1996. Abroad, offerings rose to NIS 4.5 billion from NIS 3.9 billion in 1996. The central bank found that due to an increase in local share prices at the end of 1996 and at the beginning of 1997, and against the background of crises on foreign capital markets during the second half of 1997, it became more attractive for local firms to conduct offerings in Israel.
Bank of Israel - Gabi Fishman, 972-2-6552712

FOREIGN TRADE:

* EXPORTS TO JORDAN REACH $20 MILLION IN 1997
Israeli exports to Jordan reached $20 million in 1997, according to the Industry and Trade Ministry. Trade with the neighboring country began in July 1996, and the major exports are machinery and mechanical instruments

(25%), chemical products (23%) and food and agricultural products (11%). Imports from Jordan were $12.6 million in 1997 with major components including: chemical products (22%), machinery and mechanical instruments

(16%), food and agriculture (11%) and paper and cartons (10%).
Industry and Trade Ministry - Haya Peri, 972-2-6220340

* TRADE BALANCES IMPROVE WITH UNITED STATES AND EUROPEAN UNION.
Israel's trade balance with the United States was more favorable in 1997 than in 1996 with the trade surplus reaching $1.8 billion, as compared to $1.4 billion in 1996, according to the Central Bureau of Statistics. Exports to the US, approximately one-third of all commercial exports, grew by 14% ($900 million) in 1997 while imports fell by 9%. Israel's balance of trade deficit with the European Union, approximately 70% of the total trade deficit, fell by $800 million in 1997 due to a drop in imports by 4.4% and a growth in exports of 2%. The trade balance with Japan became negative in 1997 with a deficit of $13 million, as compared to a positive balance of $120 million in 1996. Exports to South East Asia, approximately 11% of all commercial exports, were $2.5 billion in 1997 with close to one-half of this being diamonds with the remainder being mostly hi-tech. During the last quarter of 1997, exports to South East Asia fell by 26%, compared to the same period in 1996.
Central Bureau of Statistics - David Neumann, 972-2-6533400

* ISRAEL EXPORT INSTITUTE SETS UP EMERGENCY PLAN TO ASSIST EXPORTERS TO ASIA
The Israel Export Institute is instituting an emergency program to assist Israeli firms exporting to Asia in the wake of the currency crises affecting the region. The plan calls for increasing marketing infrastructure in the region, pressuring the Bank of Israel to change its monetary policies, increasing the coverage of export insurance to the region and supports to small and medium sized exporters to the region.
Israel Export Institute - Danny Bloch, 972-3-5100687

TOURISM SECTOR: